The sexual assault case against Dominique Strauss-Kahn, the former chief of the International Monetary Fund, is near collapse, US media reports say.

Quoting well-placed law enforcement officials, the New York Times said prosecutors had met Strauss-Kahn's lawyers on Thursday and the parties were discussing whether to dismiss the felony charges against him.

Although forensic evidence showed there had been a sexual encounter between Strauss-Kahn and his accuser, a hotel maid, the latter had repeatedly lied and prosecutors did not believe much of what she had said.

Sources told the New York Times that the prosecutors had discovered issues involving the asylum application of the hotel maid, a 32-year-old Guinean woman, and possible links to criminal activities, including drug dealing and money laundering.

The prosecutors had discovered that several individuals, including a man now incarcerated for possessing 180kg of marijuana, had made multiple cash deposits, totalling around $100,000 into the woman's account over the last two years.

The deposits were made in Arizona, Georgia, New York and Pennsylvania, according to the paper. But it added that the woman said she knew nothing about the deposits.

The paper reported that the woman had a phone conversation with the incarcerated man within a day of her encounter with Strauss-Kahn in which she discussed the possible benefits of pursuing the charges against him. The conversation was recorded, but the paper did not say who did the recording.

Strauss-Kahn's attorney, Benjamin Brafman, said his client would go back to court on Thursday to ask for relaxed bail conditions. It is expected that he will be allowed to travel freely in the United States but not abroad. He has been confined to an apartment in Manhattan while awaiting trial.

Strauss-Kahn, 62, was arrested on May 14 in New York on charges of sexual assault. He resigned from the IMF on May 19 and pleaded not guilty on June 6, vehemently denying the allegations. If convicted, he faces up to 25 years in prison.

Strauss-Kahn's arrest also shook up French politics as he was a leading contender for French presidency from the Socialist Party. His supporters claim that he was being set up. If charges against him are dropped, it could throw the presidential race in France wide open.

French Finance Minister Christine Lagarde was appointed as the new IMF chief on Tuesday.